The rise means it is unlikely the Bank of England will cut rates later this week, analysts say.
UK inflation jumped to 2.6% in November, its highest level in eight months.
The rise in the Consumer Price Index, from 2.3% in the previous month, was due to higher petrol and clothing prices, according to the Office for National Statistics (ONS).
‘This was partially offset by air fares, which traditionally dip at this time of year, but saw their largest drop in November since records began at the start of the century,’ ONS chief economist Grant Fitzner said.
While November’s reading was in line with expectations, it illustrates the persistent inflationary pressures in the economy such as higher wage growth, Moneyfarm CIO Richard Flax said.
Flax said the data complicates life for Bank of England ahead of the rate-setting meeting later this week.
‘[The Bank] is likely to keep policy rates unchanged and the prospect for further significant rate cuts in 2025 is increasingly uncertain,’ Flax said.
‘These developments will be closely monitored by businesses and investors, as they navigate the implications of a higher inflationary environment on their operations and financial planning.’
Evelyn Partners chief investment strategist Daniel Casali noted that CPI is running ahead of the Bank’s 2.4% forecast for the fourth quarter. He pointed out that there are still pockets of inflation in areas such as rents in the housing category, which are running north of 7% per year.
Casali also believes rates are unlikely to be cut this week following the news.
‘The monetary policy committee will be wary that services inflation becomes stuck at an elevated level and particularly after this week’s release of the October higher-than-expected average hourly earnings data, which is correlated to services inflation,’ Casali said.
‘Stubborn inflation may lead the BoE into a more modest rate-cutting cycle. So, it looks like it will skip the opportunity to cut interest rates tomorrow and it’s probable that the next BoE interest rate cuts will come at the 6 February and 8 May BoE meetings.’
Dylan Lobo (CityWire)